Question

Carl Sonntag wanted to compare what proceeds he would receive with a simple interest note versus a simple discount note. Both had the same terms: $19,500 at 8% for 2 years. Use ordinary interest as needed

Compare the proceeds.

Answer 1

The proceeds from the simple discount note is $16380 , while that of simple interest is $19500

Step-by-step explanation:

Simple discount notes could likened to a bank loan where interest on the loan is taken from the borrowed funds before disbursement to the loan's beneficiary,hence proceeds from such notes is face value of the notes less interest taken in advance.

While on the other hand,the proceeds from simple interest note is par or face value.

The discount or interest is =8%*$19500=$1560 for one year,but $3120 for two years($1560*2)

The proceeds on the simple discount note =$19500-$3120

=$16380

The proceeds on the simple interest note is face value of $19500